Propaganda proposition: sale or stake for partner

Propaganda Films may be for sale -- again. According to production executives contacted by Propaganda, the legendary production company has approached potential suitors offering a partial stake and possibly a full buyout.

Propaganda has created popular feature films such as "Being John Malkovich," music videos for Madonna and Limp Bizkit, and commercials for advertisers from Anheuser-Busch's Budweiser to Nike.

One executive from a company that was approached said Propaganda wants "a strategic partner," but another said flatly, "They're for sale. It's not a question of `if.' They are selling."

A spokeswoman for Propaganda said its executives would not comment.

LEADING CONTENDER

According to executives who rebuffed Propaganda's overtures, the leading contender in the race to land the company is Lions Gate Films, a division of Vancouver-based Lions Gate Entertainment, which has produced films such as "American Psycho" and "Sleepy Hollow." Lions Gate this month completed its acquisition of Trimark Holdings, a Los Angeles-based feature film company in a $50 million cash and stock deal. A spokesperson at Lions Gate could not confirm or deny acquisition talks were being held with Propaganda.

Propaganda has been hit by hard times. Commercial production at the company slowed significantly during the six-month Screen Actors Guild strike, and the company also lost some of its most important directors this year, including Michael Bay, David Fincher and David Kellogg.

The company recently suffered a crippling loss in its talent management division following the departure of its top division executive when Propaganda Management President Beth Holden left for Untitled Entertainment. Then just last week the company was hit with a lawsuit by former Commercial Division President Stephen Dickstein, who is suing the company for firing him without cause and denying him severance. The suit seeks $30 million in damages.

THE TALENT LEAK

"A lot of their problems have to do with the talent leak. You lose a lot of top-line revenue when you lose a director," said an executive whose company had been approached by Propaganda. "Also, there was the strike . . . It turned into a buyer's market. Suddenly, advertisers could get almost any director they wanted, whereas before they had to get competitive.

"In order to get an `A' director, they had to bid for three of them," the executive said. "During the strike they could get any guy they wanted. Advertisers did fine, but for production companies it was not so easy crossing picket lines in Los Angeles. It was just a big pain in the ass."

Propaganda has been bought and sold several times since it burst on the scene as a small music video and commercial outfit in 1986, founded by two film students, Sigurjon Sighvatsson and Steve Golin, and four directors, including Mr. Fincher. The shop quickly grew into one of the busiest and most influential production companies in the country, billing approximately $40 million, and it expanded into feature films. In 1988, Messrs. Sighvatsson and Golin sold 49% of Propaganda to Polygram in order to bankroll their ambitious movie plans. Four years later, the pair sold out the other half of their share to Polygram, which was then sold by its Dutch parent Philips Electronics to Seagram Co.

SPLIT IN HALF

In 1998, Propaganda was divided in half, with its film holdings sold to Barry Diller's USA Films and its commercial, music video and management divisions sold to a group of investors consisting of Gary Beer, the former CEO of the Sundance Group; SCP Private Equity Partners, a $265 million private equity fund in Wayne, Pa., with a portfolio thick with technology investments; and Austin, Texas-based cable pioneer Jack Crosby, former chairman of Imagine Entertainment.

Mr. Beer was expected to manage Propaganda, but almost immediately he left the company to take a position as CEO with Smithsonian Business Ventures, a division of the Smithsonian Institution in Washington. Mr. Beer handed the reins to Trevor Macy, the chief operating officer of Sundance, and shortly thereafter several key management people, including Mr. Dickstein, and several important directors left the company.

Mr. Macy then hired a new president, Rick Hess, formerly head of production at Phoenix Pictures. The company received the highly coveted Palm d'Or at the 2000 Cannes International Advertising Festival for spots directed by Lasse Hallstrom, Doug Liman and Mr. Kellogg. All three directors, however, no longer work with the company.